Firm Start to the Week; Energy Stocks Surge
Closing

Indian share markets began the trading week on a firm note and continued the upward momentum to hit new highs. At the closing bell, the BSE Sensex closed higher by 109 points and the NSE Nifty finished up by 41 points. The S&P BSE Mid Cap finished up by 1.1% while S&P BSE Small Cap finished up by 1.3%. Gains were largely seen in consumer durables stocks, realty stocks and energy stocks.

Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.1%, while the Shanghai Composite & the Hang Seng fell 0.77% and 0.36% respectively. European markets are mixed today. The CAC 40 is up 0.13% while the DAX gains 0.09%. The FTSE 100 is off 0.11%.

Rupee was trading at Rs 64.93 against the US$ in the afternoon session. Oil prices were trading at US$ 53.8 at the time of writing.

Oil & gas stocks finished the day with Suzlon Energy share price and Oil India Ltd share price leading the gains.

As per an article in The Livemint, Indian Oil Corporation (IOC) has been given green nod for augmenting its Koyali-Sanganer pipeline (KSPL) capacity up to 6 million tonnes per annum (MTPA) from existing 4.6 MTPA at a cost of Rs 2.73 billion.

Cross-country pipelines are globally recognised as the safest, cost-effective, energy-efficient and environment- friendly mode for transportation of Naphtha oil and petroleum products. IOC operates a network of about 11,750 km long Naphtha oil, petroleum product and gas pipelines with a throughput capacity of 85.5 MTPA of oil and 9.5 million metric standard cubic meter per day of gas.

Meanwhile, IOC reported an 18.4% jump in September quarter net profit to Rs3,696.29 crore from a year ago on account of higher volumes despite increased costs. Indian Oil's revenue jumped about 10% to Rs 1.1 trillion in the second quarter from a year earlier as the company stepped up sale of refinery products in domestic and export markets.

IOC share price finished the day up by 0.2% on the BSE.

In another development, ONGC share price surged 1.6% in today's trade after the company reported a 3.1% rise in its second quarter net profit as impressive gain from rising oil prices were taken away by fall in government mandated natural gas rates.

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Net profit of Rs 51.3 billion in July-September was 3.1% higher than Rs 49.8 billion in the same period last year.

ONGC's September quarter earnings were in line with analysts' estimates. Its EBITDA of Rs 104.7 billion was close to estimates. That translates into an 8.5% year-on-year growth in ONGC's EBITDA for the September quarter, helped by a decline in other expenses and comes on the back of a 3% growth in revenue to Rs 189.7 billion.

As per The Livemint, given that recent reports suggest that the ONGC-HPCL deal may happen around HPCL's market price, it should augur well for ONGC shares post that. The news flow on the deal will be a crucial measure to follow for the stock.

Moving on to news from pharma sector. Lupin share price surged 2.4% after the company posted better-than-expected earnings for quarter ended September 2017. On a consolidated basis, the company reported a net profit at Rs 4.55 billion for the quarter under review as compared to Rs 6.62 billion in the same quarter of the previous year.

Total income of the company decreased 6.75% at Rs 40.26 billion for quarter under review as compared to Rs 43.17 billion for the same quarter ended previous year.

Meanwhile, Cadila Healthcare share price finished trading on an encouraging note (up 1.1%) after it received final approval from the US drug regulator to market Clobetasol Propionate ointment. The drug is used to treat variety of skin conditions like eczema, dermatitis and allergies etc. and it will be manufactured at its Ahmedabad facility.

Bharti Airtel share price rallied 1.5% in final hour of trade after it was reported that Bharti Telecom Ltd, the holding company of Bharti Airtel Ltd, will acquire up to 4.62% stake in Airtel.

As per an article in The Livemint, the acquisition price would not be higher by more than 25% of the price computed as per the weighted average market price of the Airtel stock. As per this, the total size of the deal could be between Rs 77 billion and Rs 96.23 billion.

With the proposed deal, total shareholding of the family in Airtel will increase. However, it will continue to remain the second-largest shareholder in the Indian company after Singapore Telecommunications Ltd (Singtel).

In news from the banking sector, the industry chamber Associated Chambers of Commerce and Industry of India (ASSOCHAM) in its latest report has stated that the change in market perception of PSBs has the potential to fetch the government much higher values than that envisaged in the bank support plan. This could be achieved via stake divestment in public sector undertaking banks. This comes after the government introduced mega capital infusion scheme for public sector banks (PSBs).

According to the report, the dilution of government equity to 52% in state-owned banks under the recapitalisation plan can fetch valuation much higher than the estimated potential of Rs 580 billion.

ASSOCHAM further said that as the details emerge in the coming few weeks and months, these stocks, particularly of the larger banks can easily move up by another 30-40%, taking their market capitalization commensurately high.

This would surely mean, that if the banks are able to encash the sweet spot, they can easily raise much more than Rs 580 billion. It also said once bank lending begins to pick up, there would be consequent advantages by way of higher economic growth and tax buoyancy.

The Government recently unveiled the Rs 2.11 trillion public sector bank (PSB) capitalization plan. This will be carried out over the next two years with maximum allocation in the current year. And implemented through the budgetary provisions of Rs 181.39 billion, recapitalisation bonds to the tune of Rs 1.35 trillion.

Recapitalisation of PSBs Over the Years

PSBs are burdened by bad loans that have doubled in the past five years. This has led to a slowdown in the loan growth segment. Due to this, PSBs lost their market share from 70.9% in FY16 to 64% in FY17.

And here's a note from Profit Hunter:

In an earlier note, we spotted Titan Company Ltd breaking out of its resistance level of Rs 440 in February 2017.

After breaking that glass ceiling, it traded in a rising channel and peaked at a lifetime high of 654 in September. It then corrected before breaking below the channel's support line to touch a low of 564. After an erratic journey, it found ceiling from the previously broken support line (previous support now acted as a resistance).

It corrected further, but did not go below its previous low of 564 and today, it rallied 5%. But, this rally came without volumes, indicating a lack of buying interest in the stock.

Won't it be interesting to see if today's rally is sustainable or the lack of buying interest will lead to further correction in the stock?

Titan Rallied 5% for the Day
Titan Rallied 5% for the Day 


Sensex, Nifty Continue to Trade in Green; Consumer Durables & Energy Stocks Rally
01:30 pm

Indian share markets continued to trade well above the dotted line amid encouraging quarterly earnings. Gains were largely seen in consumer durables stocks, energy stocks and realty stocks.

The BSE Sensex is trading higher by 113 points and the NSE Nifty is trading higher by 45 points. Meanwhile, the BSE Mid Cap index is trading up by 1.2% & the BSE Small Cap index is up by 1.3%. The rupee is trading at 65.10 to the US$.

In news from the economy, as per an article in The Livemint, a ministerial panel has recommended lowering the goods and services tax (GST) rates for small businesses and extending the benefit to more such units to reduce their tax burden and improve compliance.

The changes in the so-called composition scheme could benefit millions of small enterprises, eateries and traders. As per the reports, the ministerial panel recommended a new tax rate under the composition scheme would be 1% for traders, manufacturers and restaurants from 1%, 2% and 5%, respectively earlier.

The panel also recommended increasing the ceiling for eligibility to enterprises with annual revenue of less than Rs 1.5 crore from Rs 1 crore currently.

Pharma stocks are trading on an optimistic note with Ajanta Pharma share price and Dr Reddy's lab share price leading the gains.

Cadila Healthcare share price is trading on an encouraging note (up 0.6%) after it received final approval from the US drug regulator to market Clobetasol Propionate ointment. The drug is used to treat variety of skin conditions like eczema, dermatitis and allergies etc. and it will be manufactured at its Ahmedabad facility.

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Cadila Healthcare's formulations business spans India, US, Europe and emerging markets (mainly Brazil and South Africa). The company derived 34% and 41% revenues from India and the US, respectively, in FY17.

Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals in FY17.

With an aim to lower the overall healthcare costs in the country, the US Food and Drug Administration (FDA) approved a record 763 generic drugs for the financial year ending 30th September. As per Mint Analysis, Indian pharma companies received 295 approvals accounting for 40% of the overall approvals during the year.

Generic Drug Approvals Hit The Roof

Even the total filings of abbreviated new drug applications (ANDAs) for generic drugs rose to 1,292 in FY17 from 852 in the previous year. While, faster approvals expedite the commercialisation of product pipelines of domestic pharma companies spurring growth.

At the same time however, it has raised the intensity of competition resulting in pricing pressures. The price erosion has been further compounded by a consolidation among US distributors and the decline in the number of products going off-patent over the past few years.

In another development, as per an article in The Economic Times, IDFC Bank and Shriram Capital are set to call off merger talks as both sides have failed to arrive at an acceptable valuation after four months of negotiations and regulatory misgivings.

As per the reports, the complex structure proposed by the managements involving at least four big entities engaged in transport and consumer financing and infrastructure funding. This stuttered various stakeholders who seemed to be pulling in different directions.

Reportedly, IDFC Bank was trying to find its feet in the fast-evolving, technologically driven banking industry after it got a licence in 2014. Shriram was keen on entering banking to reduce the risk of market volatility.

IDFC Bank share price was trading down by 1.5% at the time of writing.


Indian Indices Continue Momentum; Telecom Stocks Witness Buying
11:30 am

After opening the day in the green, stock markets in India have continued their momentum and are presently trading on a positive note. Sectoral indices are trading on a positive note with stocks in the telecom sector and consumer durables sector witnessing maximum buying interest.

The BSE Sensex is trading up 153 points (up 0.5%) and the NSE Nifty is trading up 49 points (up 0.5%). The BSE Mid Cap index is trading up by 1.2%, while the BSE Small Cap index is trading up by 1.1%. The rupee is trading at 64.93 to the US dollar.

In the news from the IPO space, Mahindra Logistics, the subsidiary of Mahindra & Mahindra, is scheduled to open its initial public offering tomorrow.

The company has set the price band of Rs 425 to 429 per share. The minimum lot size for subscription is 34 shares. The issue will remain open from October 31 to November 2, 2017.

Mahindra Logistics is one of India's largest 3PL (third-party logistics) solutions providers in the Indian logistics industry which was estimated at Rs 6.4 trillion in Fiscal 2017, according to the CRISIL Report.

The company follows an asset-light business model in which assets necessary for its operations such as vehicles and warehouses are owned or provided by a large network of business partners. The technology enabled asset-light business model allows for scalability of services as well as the flexibility to develop and offer customized logistics solutions across a diverse set of industries.

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Is the company leaving enough money on the table for investors? We recently released our IPO note for the above IPO. You can access the same in our IPO section.

Apart from the above two more companies viz. Khadim India Ltd and India's state-run New India Assurance Co. Ltd are set to come up with their IPO this week.

We'll shortly release our IPO notes for the above two IPOs. Stay tuned...

Speaking of IPOs, 2017 is set to be a record year for initial public offerings. However, is it worth investing in IPOs?

If past record is anything to go by, barring a few names that have quality, most IPO companies fail to live up to the hype. Also, the BSE IPO index has underperformed the Sensex over the past decade, as can be seen from the chart below:

BSE IPO Index vis-a-vis Sensex

So, an investor blindly following the IPO hype might have done better following the Sensex.

But does that mean that we should completely ignore IPOs? Here's a snip from a recent issue of The 5 Minute WrapUp answering the same...

  • While it's necessary to be cautious on IPOs, you don't need to completely ignore them either.

    For every Reliance Power - like issue, there have been issues like MarutiTCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have made investors rich.

    The percentage of such issues, unfortunately, is very low (Check this IPO performance snapshot). The odds are stacked against a retail investor.

    careful evaluation of each IPO on its merits - its fundamentals, and most importantly, valuations - is the only way to spot future multi-baggers.

To learn how to navigate the treacherous world of IPOs, do read our special report on finding money-spinning IPOs.

In other news, as per an article in the Economic Times, India is expecting a big jump in the World Bank's ease of doing business ranking that will be released on October 31.

The optimism is led by multiple reforms initiated by the government beginning to show results.

India was ranked at the 130th position in the last recording and the government has set itself a target of breaking into the top 50. However, India had risen only one position in the 2017 ranking.

For the present business environment, the need of the hour is to foster an environment that is more supportive of private sector activity. While this could take time, if efforts are sustained over the next several years, they could lead to substantial benefits for Indian entrepreneurs - along with potential gains in economic growth.


Sensex & Nifty Open at New Highs; ONGC Surges on Firm Q2 Result
09:30 am

Majority of Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 1.05% while the Hang Seng is down 0.08%. The Nikkei 225 is trading down by 0.08%. The Wall Street climbed on Friday as a surge in the tech sector and a rally in Amazon shares helped push the Nasdaq to its best day in nearly a year.

Back home, share markets in India have opened the day on a positive note. The BSE Sensex is trading higher by 118 points while the NSE Nifty is trading higher by 41 points. The BSE Mid Cap and BSE Small Cap index opened the day up by 0.8% & 0.7% respectively.

All sectoral indices have opened the day in green with automobiles sector and energy sector leading the pack of gainers. The rupee is trading at 65.09 to the US$.

Oil & gas stocks have opened the day on a mixed note with ONGC and Hindustan Oil Exploration being the most active stocks in this space. Oil and Natural Gas Corp (ONGC) on Saturday reported a 3.1% rise in its second quarter net profit as impressive gain from rising oil prices were taken away by fall in government mandated natural gas rates.

Net profit of Rs 51.3 billion in July-September was 3.1% higher than Rs 49.8 billion in the same period last year.

ONGC's September quarter earnings were in line with analysts' estimates. Its Ebitda of Rs 104.7 billion was close to estimates. That translates into an 8.5% year-on-year growth in ONGC's Ebitda for the September quarter, helped by a decline in other expenses and comes on the back of a 3% growth in revenue to Rs 189.7 billion.

Further, ONGC got US$51.2 for every barrel of crude oil it produced in the quarter, up 6.9% over US$47.9 per barrel realisation in September quarter of the last fiscal. For the fields operated jointly with private firms, the realisation was up 8.5% to US$45.9 per barrel.

Additionally, production numbers have been encouraging, especially on the gas front. For the half year to September, ONGC's total gas output increased 8.4% over a year ago and total crude oil production increased 1.2%. Sustaining and further improvement in these trends will augur well for the stock, the reports noted.

As per Livemint, given that recent reports suggest that the ONGC-HPCL deal may happen around HPCL's market price, it should augur well for ONGC shares post that. The news flow on the deal will be a crucial measure to follow for the stock.

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So, what lies ahead for the merged entity? Richa Agarwal, our oil & gas sector analyst has shared her views in the recent edition of The 5 Minute WrapUp. Here's a snippet of what she wrote:

  • "A fall in the oil prices has dented the profitability of oil exploration companies such as ONGC. The merger with a downstream company will help ONGC de-risk its business. ONGC will also benefit from the huge fuel retail network of HPCL."

Going forward, whether the move will be executed well or will lead to further complexities and integration issues instead of synergies will be the key thing to watch out for.

ONGC share price surged 2.7% in the early trade.

In another development, Foreign investors have pumped in close to US$ 3 billion in the Indian capital markets so far this month due to high nominal and real yields and stable macroeconomic conditions.

Interestingly, most of the funds have been infused in the debt markets.

According to the latest depository data, FPIs invested a net sum of Rs 28.1 billion in the stock markets and another Rs 151.3 billion in debt, taking the total to Rs 179.4 billion (US$ 2.8 billion) during 3-27 October.

This follows a net outflow of over Rs 100 billion from the capital markets last month. Prior to that, they had pumped in Rs 1.8 trillion in the preceding six months (February- August).

Reportedly, Indian bonds remain attractive on high nominal and real yields as well with the backdrop of macroeconomic stability and hence it continues to attract FPIs.

With regard to lower equity inflows, the same can be attributed to profit booking by FPIs amid high valuations.

One shall note that, Indian equities remain extremely overvalued even from a global emerging market perspective and hence witnessing lower inflows compared to bonds.

In fact, amongst all major indices, the Indian stock markets have given the best returns in 2017. Back in March 2016, we had predicted Sensex to touch 40,000 within a 3 to 4-year timeframe.

Global Index Returns in 2017

At this pace, it seems like Sensex might get there sooner rather than later. Which may not necessarily be a good thing. The current run seems to extrapolate all good news into the future and expects the ride to be smooth and consistent. But, history has shown that markets rarely work that way.

In such an environment, it makes sense for investors to be selective while buying stocks. Focus on value and the underlying fundamentals of the business. Then, they need not worry about the market.

So, what is key to identifying potential multibagger stocks? How does one pick them at the right time and ride them to their full potential? How many multibaggers do you really need to achieve the big riches that you desire?

Most importantly, are there any stocks right now that could turn out to be multibaggers? Click here to know everything that you need to know right now about mutlibagger stocks...


Strong US Markets; ITC, Tata Steel Results & Other Top Cues to Sway the Market Today
Pre-Open

Indian share markets finished the trading session on a flat note after hitting record highs earlier during the day. At the closing bell last week, the BSE Sensex closed higher by 10 points and the NSE Nifty finished down by 21 points. The S&P BSE Mid Cap finished up by 0.3% while S&P BSE Small Cap finished up by 0.2%. Gains were largely seen in pharma stocks and automobile stocks. PSU stocks, energy stocks and bank stocks witnessed majority of the selling pressure.

Results Corner

Indian oil corporation share price plunged 5% in previous trading session despite the company reporting an 18.4% jump in September quarter net profit to Rs3,696.29 crore from a year ago on account of higher volumes despite increased costs. Indian Oil's revenue jumped about 10% to Rs 1.1 trillion in the second quarter from a year earlier as the company stepped up sale of refinery products in domestic and export markets.

Maruti Suzuki share price is expected to see some momentum as the company posted a marginal increase in September quarter net profit but still beat Street expectations. Maruti Suzuki India Ltd posted more than a 3% rise in its quarterly profit, beating analysts' estimates. The company reported a profit of Rs 24.84 billion (US$381.86 million) for the second quarter of FY18, versus Rs 24.02 billion a year ago.

ITC share price is expected to see action as the company reported a 5.6% rise in net profit for the second quarter ended September 30, driven mainly by its paper and new FMCG businesses. Net profit stood at Rs 26.39 billion for the quarter and Rs 52 billion for the first half of 2017-18 compared with Rs 48.84 billion a year earlier. The company said that its performance was subdued as the legal cigarette industry volumes were under severe pressure due to the sharp increase in tax incidence under the GST regime.

HDFC share price, IDFC share price and Tata Steel share price to see some action today as the major heavyweights declare their quarterly results during market hours today.

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Top Stocks to Watch Out

Ashok Leyland share price is expected to be in limelight today as the company is looking at investing Rs 4- 5 billion in its electric vehicle business over the next three to five years. The company aims to be future ready and also stated that the government needs to step up investments in electric vehicle technology to help bring down battery costs and encourage adoption of green mobility solutions.

In news from energy stocks, as per an article in The Livemint, Indian Oil Corp. Ltd., Hindustan Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd. are expanding their network of liquified petroleum gas (LPG) dealerships by appointing more than 6000 new distributors. This will mainly be in rural areas and in addition to the locations for which selection has already been made.

Meanwhile, as per an article in The Economic Times, HDFC Bank has been given green signal for setting up of a call centre cum residential training centre in Mohali district, Punjab at a cost of Rs 1.94 billion.

IPO Segment

The initial public offering (IPO) of Reliance Nippon Life Asset Management Ltd, India's third largest mutual fund manager, was subscribed 81.45 times on Friday, the last day of the share sale. The Rs 15.42 billion Reliance Nippon Life AMC IPO comprises a fresh issue of shares worth Rs 6.17 billion.

Meanwhile, Mahindra Logistics plans to open an IPO of Rs 8.29 billion through Offer for Sale (OFS). The price band for the IPO is fixed at Rs. 425-429 per share. The minimum lot size for subscription is 34 shares. The issue will remain open from October 31 to November 2, 2017.

In another development, as per a leading financial daily, India's state-run New India Assurance Co. Ltd has set a price band of Rs770-800 a share for its initial public offering (IPO) opening on 1 November. At the upper end of the price range, the IPO would raise Rs9,600. The sale will close on 3 November.

The IPO is part of the government's disinvestment program. So far in FY 18, the government has raised Rs 197.58 billion through disinvestment and strategic disinvestments of public sector enterprises as against its target of Rs 725 billion.

The market euphoria is something similar to what was seen in 2007-08. When everyone around you is clamoring to get a piece of the IPO pie, it makes sitting tight difficult. And, why should you sit tight when stocks like Avenue Supermart lets you pocket a cool 100% gain from day 1 of the listing?

History suggests that these cases are few and far between. More than 70% of the IPOs listed in 2007 and 2008 are in the red, even today when the Sensex is at an all-time high.

This allows us to stay on the fence when it comes to investing in IPOs. But it doesn't make sense to completely ignore this space. For every Reliance Power - like issue, there have been issues like Maruti, TCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders. A merit-based selection primarily including valuation, business, and management quality is the logical way to go about it.

US Markets Stay Hit New Highs

US stock markets hit new peaks on Friday after forecast-beating results from the technology companies including Google's parent company Alphabet, Amazon and Microsoft. All three saw their shares soar to record highs in the wake of better than expected quarterly updates, adding billions in revenues and increasing profits compared with the same three-month period in 2016.

Oil prices Remain Flat

Oil prices rose strongly last week before breaking two-year-highs on Friday. The price gains came after robust data from the EIA this week, plus rising confidence in an OPEC extension.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.